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The government has cut the number of investigators who may examine allegations of fraud against private welfare suppliers, while inviting new bids for contracts worth billions of pounds to deliver the benefits system.

Figures show there are now just 49 officials in the Department for Work and Pensions who are expected to inquire into accusations that private firms are defrauding the public purse – a reduction of 20 specialists in two years.

A raft of lucrative contracts worth between £300m and £5bn are expected to be awarded to companies in the next few months, after the passing of the welfare reform bill. There is growing concern over the potential for abuse of public money by companies bidding for outsourced government contracts. DWP officials are investigating £200m of contracts held by A4e, the welfare-to-work provider, following allegations of fraud.

In March 2010 there were 69 full-time staff in the DWP’s internal investigations department. The following year there were 58; now there are 49. Over the same period the number of investigators examining allegations of fraud against benefit claimants rose from 2,760 to 2,876.

The Labour MP Liam Byrne, who is standing down as shadow work and pensions secretary, said the figures exposed the government’s relaxed attitude towards possible fraud in a sector that is being opened up to increasing numbers of private contractors.

“The questions hanging over the £5bn Work Programme and possible fraud are so severe that the DWP are threatening to terminate £440m of contracts. It beggars belief that at the same time ministers could have cut such a huge slice of their counter-fraud team.

“With billions at stake the government must tell us how this decision was taken, whether it is now under review and, crucially, what impact these reductions have had on the policing of their Work Programme,” he said.

Under the government’s welfare reforms, which are being implemented quickly, more than 3.2 million people will be assessed by private companies as to whether they can rejoin the workforce. Five-year contracts for the project – with an option for two-year extensions – will be awarded on a regional basis, with the winners announced in July for implementation from April 2013. G4S carried out a trial for the government last year.

MPs on the public accounts committee, who are conducting an inquiry into the sector, have received hundreds of complaints from whistleblowers who say fraud is rife. David Cameron disclosed this month that there had been 125 investigations into back-to-work programmes in the last six years, prompting calls for greater vigilance. Private suppliers of welfare-to-work programmes are likely to be among the list of companies competing to win new contracts as a result of the welfare reform bill.

A DWP spokeswoman said the job losses in the investigations department had come as a result of the spending review, but denied they would lead to a reduction in the number of cases investigated.

“We have not reduced the resource involved in the investigation of contractor fraud or irregularities. Where allegations of potential fraud or irregularities arise in relation to staff or contractors they continue to be investigated professionally and thoroughly, and where appropriate these are referred to the police,” she said.